2019 Canadian Healthcare Trend Survey Indicates Insurers Calculate Claims Trend Increases at More Than Twice the Rate of Actual Costs

Buck’s report recommends prudent plan design to help companies control cost escalation by encouraging healthy lifestyles and embracing technology

Buck, an integrated HR and benefits consulting, administration, and technology services firm, released the findings of its 2019 Canadian Healthcare Trend Survey, indicating that insurer trend factors for drug, health, and dental costs in 2019 remained relatively stable — a consistent trend for the last several years — with only slight increases in some categories and a decrease in the prescription drug trend.

Buck predicts that, based on actual 2018 claim trends, most plan sponsors could expect to see a 3% to 5% increase in drug claims. However, insurance providers also add a “market inflation” factor, resulting in a projected increase of almost 11%.

“Our survey shows that although actual drug claims remain relatively stable, insurers continue to project a faster rate of increase due to market inflation,” said Lizann Reitmeier, Health Practice Leader in Canada, Buck. “Insurance providers factor projected market inflation into the rate setting calculation, and this has the potential to drive plan costs both higher and faster than the actual trend in healthcare spending.”

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On a blended basis, insurers are using an average health trend factor of 11.43%, down slightly from 11.92% last year.

Survey highlights

• Prescription drugs ‘inflation factor’ dropped: Prescription drug costs represent the majority of private payer health spend and have the greatest influence on employer benefit cost trends. Insurers’ inflation factors for prescription drugs demonstrate a decrease from 12.45% in 2018 to 10.99% for 2019.
• Hospital inflation exploded: Hospital inflation factors were consistently reducing from 2015 to 2018. This trend reversed in 2019 with the insurer trend increasing to 10.03% from 2.60% in 2018. However, this cost represents a relatively small portion of plan spend.
• Dental utilization crept up: Expected utilization trend of dental services has increased slightly over the past two years to 5.86% in 2019.

“Medical, prescription drug, and dental care coverage make up an important component of employees’ total compensation,” said Reitmeier. “To help contain costs, companies need to think creatively about how they can encourage a healthy lifestyle for employees and embrace medical advances in testing and treatment to achieve better health outcomes.”

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Plan considerations for sponsors

According to Buck’s research, medical advances, demographic trends, and regulatory oversight will all exert an influence over healthcare costs in the coming year, and companies should actively consider how their plans might evolve to keep their employees healthy and productive and costs under control.

The survey identifies the following considerations:

• A generally younger employee population hints at making plans more “stage appropriate” as their needs may differ from traditional health care.
• Developments in diagnostic technology can lead to earlier detection of health conditions (and perhaps to lower plan costs overall, especially if the cost of absence is considered), but covering the cost of new technology may drive plan costs up.
• The termination of drug coverage under the Ontario Health Insurance Plan (OHIP) Plus plan for people under 25 with private coverage will increase cost pressures on employer plans. However, the impact may be softened by the creation of a National Pharmacare program which should create a consistent drug formulary, give the government a boost in bargaining power with drug makers, and shift high cost drugs away from employer plans.
• New genetic testing may encourage more individuals to take genetic pre-screening tests when appropriate, which will in turn create better health outcomes.
• Wellbeing plans can provide necessary support services, leading to healthier outcomes and lower plan cost trends.

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